IDEAS home Printed from https://ideas.repec.org/p/cdh/ebrief/101.html

The Loonie’s Flirtation with Parity: Prospects and Policy Implications

Author

Listed:
  • Philippe Bergevin

    (C.D. Howe Institute)

  • Colin Busby

    (C.D. Howe Institute)

Abstract

With the Canadian dollar near parity with its US counterpart, monetary policymakers may come under pressure to curb future interest rate increases to limit the loonie’s appreciation. When the value of the loonie is in line with economic fundamentals, such actions would necessarily compromise the domestic inflation target. By examining the factors underpinning the Canada/US exchange rate, we conclude that the present trading range for the loonie is supported by fundamentals. The Bank of Canada should therefore continue its policy of benign neglect with regard to the exchange rate.

Suggested Citation

  • Philippe Bergevin & Colin Busby, 2010. "The Loonie’s Flirtation with Parity: Prospects and Policy Implications," e-briefs 101, C.D. Howe Institute.
    • Handle: RePEc:cdh:ebrief:101
    as

    Download full text from publisher

    File URL: https://www.cdhowe.org/sites/default/files/attachments/research_papers/mixed//ebrief_101.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Philipp Maier & Brian DePratto, 2008. "The Canadian Dollar and Commodity Prices: Has the Relationship Changed over Time?," Discussion Papers 08-15, Bank of Canada.
    2. Ramzi Issa & Robert Lafrance & John Murray, 2006. "The Turning Black Tide: Energy Prices and the Canadian Dollar," Staff Working Papers 06-29, Bank of Canada.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Beine, Michel & Bos, Charles S. & Coulombe, Serge, 2012. "Does the Canadian economy suffer from Dutch disease?," Resource and Energy Economics, Elsevier, vol. 34(4), pages 468-492.
    2. Hem C. Basnet & Puneet Vatsa & Subhash Sharma, 2014. "Common Trends and Common Cycles in Oil Price and Real Exchange Rate," Global Economy Journal (GEJ), World Scientific Publishing Co. Pte. Ltd., vol. 14(2), pages 249-263, June.
    3. Hassan Suleiman & Zahid Muhammad, 2011. "The real exchange rate of an oil exporting economy: Empirical evidence from Nigeria," FIW Working Paper series 072, FIW.
    4. Salisu, Afees A. & Mobolaji, Hakeem, 2013. "Modeling returns and volatility transmission between oil price and US–Nigeria exchange rate," Energy Economics, Elsevier, vol. 39(C), pages 169-176.
    5. Korhonen, Iikka & Juurikkala, Tuuli, 2007. "Equilibrium exchange rates in oil-dependent countries," BOFIT Discussion Papers 8/2007, Bank of Finland, Institute for Economies in Transition.
    6. Maxym Chaban, 2010. "Cointegration analysis with structural breaks and deterministic trends: an application to the Canadian dollar," Applied Economics, Taylor & Francis Journals, vol. 42(23), pages 3023-3037.
    7. Chen, Haiqiang & Choi, Paul Moon Sub & Hong, Yongmiao, 2013. "How smooth is price discovery? Evidence from cross-listed stock trading," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 668-699.
    8. Fakhri Hasanov & Jeyhun Mikayilov & Cihan Bulut & Elchin Suleymanov & Fuzuli Aliyev, 2017. "The Role of Oil Prices in Exchange Rate Movements: The CIS Oil Exporters," Economies, MDPI, vol. 5(2), pages 1-18, April.
    9. Fakhri Hasanov, 2010. "The Impact of Real Oil Price on Real Effective Exchange Rate: The Case of Azerbaijan," Discussion Papers of DIW Berlin 1041, DIW Berlin, German Institute for Economic Research.
    10. Hasanov, Fakhri, 2009. "Analyzing price level in a booming economy: the case of Azerbaijan," MPRA Paper 29555, University Library of Munich, Germany.
    11. Iikka Korhonen & Tuuli Juurikkala, 2009. "Equilibrium exchange rates in oil-exporting countries," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 33(1), pages 71-79, January.
    12. Rafael Gomez & Morley Gunderson & René Morissette, 2013. "Labour Adjustment Implications of Service Offshoring: Evidence from Canada," British Journal of Industrial Relations, London School of Economics, vol. 51(1), pages 148-173, March.
    13. Leo Michelis & Cathy Ning, 2010. "The dependence structure between the Canadian stock market and the USD/CAD exchange rate: a copula approach," Canadian Journal of Economics, Canadian Economics Association, vol. 43(3), pages 1016-1039, August.
    14. Moghaddam, Mohsen Bakhshi & Lloyd-Ellis, Huw, 2022. "Heterogeneous effects of oil price fluctuations: Evidence from a nonparametric panel data model in Canada," Energy Economics, Elsevier, vol. 110(C).
    15. Rebeca Jiménez‐Rodríguez & Amalia Morales‐Zumaquero, 2020. "Impact of commodity prices on exchange rates in commodity‐exporting countries," The World Economy, Wiley Blackwell, vol. 43(7), pages 1868-1906, July.
    16. Mohamed BELHEDI & Ines SLAMA & Amine LAHIANI, 2015. "Tranmission Of International Shocks To An Emerging Small Open-Economy: Evidence From Tunisia," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 42, pages 231-258.
    17. Korhonen, Iikka & Juurikkala, Tuuli, 2007. "Equilibrium exchange rates in oil-dependent countries," BOFIT Discussion Papers 8/2007, Bank of Finland Institute for Emerging Economies (BOFIT).
    18. Akram, Q. Farooq, 2020. "Oil price drivers, geopolitical uncertainty and oil exporters' currencies," Energy Economics, Elsevier, vol. 89(C).
    19. Vasishtha, Garima & Maier, Philipp, 2013. "The impact of the global business cycle on small open economies: A FAVAR approach for Canada," The North American Journal of Economics and Finance, Elsevier, vol. 24(C), pages 191-207.
    20. Jonathan Hambur & Lynne Cockerell & Christopher Potter & Penelope Smith & Michelle Wright, 2015. "Modelling the Australian Dollar," RBA Research Discussion Papers rdp2015-12, Reserve Bank of Australia.

    More about this item

    Keywords

    ;
    ;
    ;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cdh:ebrief:101. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kristine Gray The email address of this maintainer does not seem to be valid anymore. Please ask Kristine Gray to update the entry or send us the correct address (email available below). General contact details of provider: https://edirc.repec.org/data/cdhowca.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.